Blue Bird (BLBD)

School bus company Blue Bird (NASDAQ:BLBD) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 3.7% year on year to $358.9 million. The company’s full-year revenue guidance of $1.45 billion at the midpoint came in 0.9% above analysts’ estimates. Its non-GAAP profit of $0.96 per share was in line with analysts’ consensus estimates.

Company Overview

With around a century of experience, Blue Bird (NASDAQ:BLBD) is a manufacturer of school buses and complementary parts.

Heavy transportation equipment companies are investing in automated vehicles that increase efficiencies and connected machinery that collects actionable data. Some are also developing electric vehicles and mobility solutions to address customers’ concerns about carbon emissions, creating new sales opportunities. Additionally, they are increasingly offering automated equipment that increases efficiencies and connected machinery that collects actionable data. On the other hand, heavy transportation equipment companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the construction and transport volumes that drive demand for these companies’ offerings.

Competitors offering similar products include Lion Electric (NYSE:LEV), IC Bus (NYSE:NAV), and Thomas Built Buses (FRA:DAI).

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Blue Bird’s sales grew at a tepid 5% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Blue Bird.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Blue Bird’s annualized revenue growth of 16.5% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

We can better understand the company’s revenue dynamics by analyzing its number of units sold, which reached 2,295 in the latest quarter. Over the last two years, Blue Bird’s units sold averaged 6.8% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, Blue Bird reported modest year-on-year revenue growth of 3.7% but beat Wall Street’s estimates by 0.6%.

Looking ahead, sell-side analysts expect revenue to grow 9.4% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is healthy and implies the market sees success for its products and services.

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

Blue Bird has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 13.4% gross margin over the last five years. That means Blue Bird paid its suppliers a lot of money ($86.58 for every $100 in revenue) to run its business.

In Q1, Blue Bird produced a 19.7% gross profit margin, up 1.3 percentage points year on year. Blue Bird’s full-year margin has also been trending up over the past 12 months, increasing by 1.5 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Blue Bird was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.7% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Blue Bird’s operating margin rose by 7.4 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Blue Bird generated an operating profit margin of 9.4%, down 1 percentage points year on year. Conversely, its revenue and gross margin actually rose, so we can assume it was less efficient because its operating expenses like marketing, R&D, and administrative overhead grew faster than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Blue Bird’s EPS grew at a spectacular 17.3% compounded annual growth rate over the last five years, higher than its 5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Blue Bird’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Blue Bird’s operating margin declined this quarter but expanded by 7.4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Blue Bird, its two-year annual EPS growth of 154% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q1, Blue Bird reported EPS at $0.96, up from $0.89 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Blue Bird’s full-year EPS of $3.55 to grow 19.9%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Blue Bird has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.9%, subpar for an industrials business.

Taking a step back, an encouraging sign is that Blue Bird’s margin expanded by 2.7 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

Blue Bird’s free cash flow clocked in at $18.75 million in Q1, equivalent to a 5.2% margin. The company’s cash profitability regressed as it was 9.8 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t put too much weight on this quarter’s decline because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, causing short-term swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Blue Bird’s five-year average ROIC was 34.1%, placing it among the best industrials companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Blue Bird’s ROIC has increased significantly. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Companies with more cash than debt have lower bankruptcy risk.

Blue Bird is a profitable, well-capitalized company with $130.7 million of cash and $101.2 million of debt on its balance sheet. This $29.59 million net cash position is 2.4% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Blue Bird beat analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance slightly exceeded Wall Street’s estimates. Overall, this print had some key positives. The stock remained flat at $37.50 immediately following the results.

Updated: June 14, 2025 at 10:09 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

There are several reasons why we think Blue Bird is a great business. Although its revenue growth was uninspiring over the last five years, its growth over the next 12 months is expected to be higher. And while its low gross margins indicate some combination of competitive pressures and high production costs, its expanding operating margin shows the business has become more efficient. In addition, Blue Bird’s projected EPS for the next year implies the company’s fundamentals will improve.

Blue Bird’s P/E ratio based on the next 12 months is 9.6x. Scanning the industrials landscape today, Blue Bird’s fundamentals really stand out, and we like it at this bargain price.

Wall Street analysts have a consensus one-year price target of $51.57 on the company (compared to the current share price of $42), implying they see 22.8% upside in buying Blue Bird in the short term.